Building boom drives up costs of construction materials

Prices of key materials used in new-home construction and remodeling continue to rise, industry experts say.

A construction boom in China is swallowing up large chunks of U.S. steel and cement, creating shortages in some regional markets here and sending prices skyrocketing, they say.

In addition, lumber prices in this country continue to surge. Not only are plywood and oriented strand board commanding record prices, but framing lumber used to build the majority of new homes reached $460 per 1,000 board-feet on May 7, according to Random Lengths, of Eugene Ore., which tracks lumber prices.

A year earlier, 1,000 board-feet of framing lumber cost $281.

The reason for the higher costs: While demand has increased over the last three years, production capacity has not expanded to meet it, said Michael Carliner, chief economist for the National Association of Home Builders.

The fact that oriented strand board and plywood prices have more than doubled in a year "is strictly related to home building in this country, not to a global situation," he said.

But shortages of cement and an increase in the price of steel are global in origin.

In response to unprecedented economic growth, China is adding, or expecting to build, 9 billion square feet of housing by the end of next year.

Coupled with government efforts to improve the nation's infrastructure, China is rapidly becoming the world's biggest consumer of steel and cement.

In an article in the People's Daily, Li Shijun, deputy secretary-general of the China Iron and Steel Association, indicated that the importation of vast quantities of steel from world producers such as the United States would continue.

China is consuming 250 million tons a year but producing only 210 million tons, he said. Annual consumption will reach 310 million tons in 2010, Li said.

China has the fourth-largest economy in the world, and is consuming one-third of the world's steel production and 40 percent of the world's cement, Carliner said.

In response to lumber-price increases in the past, the home builders' association has encouraged residential builders to use alternative materials such as light steel -- used to frame commercial buildings -- instead of lumber.

But steel-price increases have put a crimp in that idea. Carliner said light steel -- typically made of recycled material -- now costs more than framing lumber.

Higher oriented strand board and plywood prices -- and the delays mills are experiencing in delivering the material -- have led some builders to use non-structural insulated panels to close houses to the elements, Carliner said.

"But these panels aren't suitable for exterior use as are structural panels" such as oriented strand board and plywood, he said.

The rising price of steel is contributing to an increase in demand for cement, said Ed Sullivan, chief economist for the Portland Cement Association in Skokie, which includes the industry's major producers.

Unlike most winters, cement producers were unable to stockpile this year in anticipation of the spring demand.

"Construction is a cyclical industry, and the United States depends on imported cement to fill the gap between domestic production and fluctuating demand," Sullivan said.

Slightly more than one-fifth of the Portland cement consumed annually in the United States is imported, Sullivan said.

Florida, for example, imports 40 percent of its cement, a larger share than the national average, Carliner said. So South Florida, which is in the midst of a building boom, is experiencing shortages, he said.

In Pennsylvania, builders do not appear to be having cement-supply problems.

"Just about all of the cement we use is produced in Pennsylvania, and is shipped just a short distance," said Marshal Granor, a principal in Granor Price Homes in Horsham, Pa.

Still, some builders are concerned about higher prices.

"We use a lot of concrete in building sidewalks and roads, so we are conscious of price increases," said Gary G. Schaal, vice president of sales and marketing for Orleans Homebuilders Inc. in Bensalem, Pa.

Schaal noted that, although steel is not a staple of residential construction per se, a lot of what goes into a house is made with steel.

"I was surprised by that, but we use steel girders and as rebar in concrete foundations," he said. "There is steel in appliances and in light fixtures."

Schaal and other builders also mentioned increases in the price of drywall and insulation, but those are typically seasonal.

And that will mean higher new-home prices, as well as a lot of renegotiated remodeling contracts.

No one anticipated that construction and remodeling would reach their current pace. Interest rates have remained relatively low, but even a slight increase will turn procrastinators into buyers.

"Construction spending reached an all-time high in March with a seasonally adjusted annual rate of $944.1 billion," Sullivan said. The 1.5 percent increase over February activity exceeded the expectations of most economists.